Transunion reports that they have seen an increase in Americans who are paying their mortgages late in order to pay their credit card bills on time. Finance expert Alvin Hall spoke with National Public Radio (NPR) earlier this week to discuss the logic behind this increasing public trend and what it could mean to consumers in the long run.
“It's a calculated strategy,” Hall explains. “Imagine that you bought a house that you paid $250,000 for and it's now underwater, worth $140,000. You are saying to yourself, well, I'm never going to be able to pay off this mortgage, and I don't want to pay off a mortgage when the house is worth less. But I still have to be able to put food on the table, pay for the phone, pay for gasoline, be able to get to work.
“So people see credit cards as their safety net. Many of them have exhausted all the money in savings. They've tapped into their 401(k) programs. So this is the only thing they have keeping them, you know, sustaining them in their life. So, yes, there's a logic to it, but there's a very calculated risk involved.”
Hall said that people forget one of the best ways to build wealth is through home ownership and if you lose your home you do not have something to fall back on. He explained that while paying off your credit cards first would make sense in the short term and sort of keep yourself afloat, you could lose the chance to ever be able to afford a house again. “If the house is not underwater, then people should focus on making the mortgage payments - or at least seek a modification,” he said.
While paying off your credit card debts is of great importance, it is always a good idea to talk with the provider of your home loan and seek help in the event that you find yourself stuck in a terrible financial situation. Banks are inclined to help you because they make more profits in the long run if they continue to get some form of payment instead of having to sell off the house at a greatly reduced price. Worst case scenario they say no and you decide to invest your money elsewhere.
As always, stay tuned to Credit Cards Professor for more credit card news and updates.
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